Case Study: Pre-IPO restructuring in CIS

Pre-IPO restructuring in CIS jurisdictions is not a simplified version of a Western transaction - it is a distinct legal exercise shaped by fragmented corporate law, underdeveloped capital markets regulation and the practical reality that most CIS operating businesses were built without an eventual public listing in mind. A company preparing for an IPO on a major exchange - whether in London, Hong Kong, Astana or Dubai - must transform its legal architecture from the ground up, and the window for doing so is narrower than most founders expect.

The core challenge is structural: CIS operating companies typically sit inside opaque ownership chains, carry informal governance arrangements and hold assets in ways that do not survive the due diligence process of institutional investors or listing regulators. The restructuring must simultaneously address holding structure, shareholder agreements, minority rights, intellectual property title, employment arrangements and regulatory licences - all while preserving operational continuity and managing tax exposure.

This article walks through the legal tools available, the procedural sequence that works in practice, the most common mistakes made by international and domestic clients alike, and the strategic choices that determine whether a restructuring actually enables a listing or merely delays it.

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CIS jurisdictions share a common Soviet-era legislative heritage, but their corporate law frameworks have diverged significantly over the past three decades. Understanding these differences is essential before selecting the jurisdiction for the holding company or the listing vehicle.

Kazakhstan operates under the Law on Joint Stock Companies (Закон о акционерных обществах) and the Law on Limited Liability Partnerships (Закон о товариществах с ограниченной ответственностью). The Astana International Financial Centre (AIFC) operates a parallel common law framework based on English law principles, with its own Court and Arbitration Centre. For pre-IPO purposes, the AIFC framework is increasingly the preferred vehicle for companies targeting international institutional investors, because it allows English-law governed shareholder agreements, drag-along and tag-along rights, and anti-dilution provisions that are difficult to enforce under Kazakhstani civil law.

Georgia has reformed its corporate law substantially, with the Law on Entrepreneurs (Закон о предпринимателях) providing a relatively flexible framework for restructuring. Georgia';s appeal for CIS holding structures lies in its tax treaty network, its low corporate income tax rate under the Estonian-model territorial system, and its relatively straightforward company registration process. However, Georgia lacks a developed capital markets regulator capable of supporting a domestic listing, so Georgian holding companies are typically used as intermediate vehicles rather than listing entities.

Armenia and Uzbekistan present more constrained environments. Armenian corporate law under the Law on Joint Stock Companies (Закон об акционерных обществах) imposes mandatory minimum capital requirements and restricts certain types of shareholder arrangements. Uzbekistan has accelerated corporate law reform, but the practical enforceability of complex shareholder agreements through Uzbek courts remains uncertain.

Cyprus, while not a CIS jurisdiction, remains the most common offshore holding layer for CIS operating businesses, and its role in pre-IPO restructuring cannot be ignored. Cyprus holding companies benefit from EU membership, an extensive double tax treaty network, and familiarity among international institutional investors. The Companies Law, Cap. 113 provides a well-understood framework for share classes, preference rights and drag-along mechanisms.

A non-obvious risk for international clients is assuming that a shareholder agreement valid under English or Dutch law will be automatically enforceable in the jurisdiction where the operating company sits. CIS civil law systems generally apply the law of the place of incorporation to questions of corporate governance, which means that provisions in an offshore shareholder agreement may have no effect on the conduct of a Kazakhstani or Georgian subsidiary.

To receive a checklist for pre-IPO holding structure selection in CIS jurisdictions, send a request to info@vlolawfirm.com.

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The pre-IPO restructuring toolkit in CIS jurisdictions includes several distinct legal instruments, each with specific conditions of applicability, procedural timelines and cost implications.

Conversion of legal form is often the first step. Most CIS operating businesses are structured as limited liability companies (LLPs in Kazakhstan, LLCs in Georgia and Armenia). A public listing requires a joint stock company (JSC) structure, because only JSCs can issue publicly traded shares. Conversion from an LLP to a JSC in Kazakhstan requires a decision of the general meeting of participants, approval by the financial regulator if the company operates in a regulated sector, re-registration with the State Revenue Committee, and a minimum share capital of 50,000 monthly calculation indices for open JSCs. The procedural timeline from board resolution to completed re-registration typically runs 60 to 90 days, assuming no regulatory approvals are required.

Share class engineering is the mechanism by which pre-IPO investors receive economic and governance rights that differ from those of founders. CIS civil law systems have historically recognised only ordinary shares and preference shares, with preference shares carrying fixed dividend rights but no voting rights. This binary structure is inadequate for sophisticated pre-IPO investors who require participating preference shares, ratchet mechanisms, liquidation preferences and anti-dilution protection. The AIFC framework resolves this by allowing companies incorporated under AIFC law to issue shares with any combination of rights, subject to disclosure in the articles of association. For companies incorporated under Kazakhstani civil law, the workaround is a combination of a civil law JSC structure with an AIFC-governed shareholder agreement that creates contractual equivalents of the missing share class features.

Upstream mergers and spin-offs are used to consolidate operating assets under a single holding company or to separate non-core assets before the listing. In Kazakhstan, a merger (слияние) requires approval by the antimonopoly authority if the combined assets or turnover exceed statutory thresholds under the Entrepreneurial Code (Предпринимательский кодекс), Article 212. The antimonopoly review adds 30 to 45 days to the timeline. A spin-off (выделение) requires a separation balance sheet, creditor notification with a 30-day objection period, and re-registration of the successor entity. Creditor notification is a step that many international clients underestimate - creditors who object can demand early repayment of outstanding obligations, which can create liquidity pressure at a sensitive stage of the restructuring.

IP consolidation is a distinct sub-process that frequently delays pre-IPO timelines. CIS operating businesses often hold trademarks, patents and software rights in the names of individual founders, subsidiary companies or even employees. Before a listing, all material IP must be transferred to the listing vehicle or its direct subsidiary, with clean title confirmed by the relevant IP registry. In Kazakhstan, trademark assignments are registered with the National Institute of Intellectual Property (NIIP), and the registration of an assignment takes 30 to 60 days. Unregistered assignments are not effective against third parties. A common mistake is completing the corporate restructuring without addressing IP title, which then surfaces as a material issue during the IPO due diligence process and requires a secondary remediation exercise under time pressure.

Employment and labour restructuring is often the last item on the pre-IPO checklist but carries significant liability exposure. CIS labour codes generally provide strong employee protections, and restructuring that involves redundancies, changes to employment terms or transfer of employees between entities requires compliance with mandatory consultation and notice periods. In Kazakhstan, the Labour Code (Трудовой кодекс), Article 52, requires a minimum 30-day notice period for redundancies due to reduction of headcount, with severance pay obligations. Failure to comply creates contingent liabilities that must be disclosed in the IPO prospectus.

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The sequencing of pre-IPO restructuring steps is as important as the selection of tools. Errors in sequencing - such as completing a share capital increase before resolving IP title, or signing a shareholder agreement before completing the legal form conversion - create legal inconsistencies that require costly remediation.

A workable sequence for a CIS operating business targeting an international listing runs as follows.

The first phase covers corporate audit and gap analysis. Before any restructuring steps are taken, a full legal audit of the operating group is essential. This covers ownership chain verification, review of all existing shareholder agreements and corporate approvals, identification of related-party transactions, mapping of IP ownership, and review of material contracts for change-of-control provisions. Change-of-control clauses in key commercial contracts - particularly licences, distribution agreements and government contracts - can be triggered by the restructuring itself, not just by the IPO. Identifying these clauses early allows the company to seek waivers or restructure the relevant contracts before the trigger event occurs.

The second phase covers holding structure establishment. The listing vehicle - whether an AIFC JSC, a Cyprus company or a Dutch BV - is incorporated, and the ownership chain from the listing vehicle down to the operating subsidiaries is established. This phase includes the execution of share transfer agreements, the filing of regulatory notifications where required, and the registration of new ownership with the relevant corporate registries. In Kazakhstan, changes to the shareholder register of a JSC must be reflected in the register maintained by the Central Securities Depository (CSD), and the CSD registration is a condition for the validity of the share transfer.

The third phase covers governance build-out. Pre-IPO investors and listing regulators expect a functioning board with independent directors, audit and remuneration committees, and documented internal controls. In practice, CIS companies at this stage often have nominal boards with no independent members and no committee structure. Building a compliant governance framework requires amendments to the articles of association, board resolutions, and in some cases changes to the company';s internal regulations (внутренние документы). The AIFC Corporate Governance Code provides a useful benchmark for companies targeting institutional investors, even if the company is not yet listed on the Astana International Exchange (AIX).

The fourth phase covers pre-IPO financing and investor documentation. Pre-IPO investors typically enter through a convertible note or a SAFE (Simple Agreement for Future Equity) instrument, or through a direct subscription for preference shares. The documentation must be governed by a law that is familiar to the investor - English law in most cases - and must be consistent with the corporate structure established in phase two. A non-obvious risk at this stage is the interaction between the pre-IPO investor';s anti-dilution rights and the employee option pool that most listing advisers recommend establishing before the IPO. If the option pool is established after the pre-IPO round closes, it may trigger the anti-dilution mechanism and require a recalculation of the pre-IPO investor';s ownership percentage.

The fifth phase covers regulatory pre-clearance and prospectus preparation. For a listing on the AIX, the Financial Services Authority of the AIFC (AFSA) is the competent regulator. For a listing on the Kazakhstan Stock Exchange (KASE), the Agency for Regulation and Development of the Financial Market (ARDFM) is the competent authority. Both regulators require a prospectus that complies with their respective disclosure rules, and both conduct a review process that typically takes 45 to 90 days from submission of a complete application. Incomplete applications - a frequent occurrence when the restructuring has not been fully completed before submission - restart the review clock.

To receive a checklist for pre-IPO restructuring sequencing in Kazakhstan and AIFC, send a request to info@vlolawfirm.com.

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The abstract framework above takes on concrete meaning when applied to specific business profiles. Three scenarios illustrate how the legal tools and sequencing interact with real business situations.

Scenario one: a Kazakhstani fintech company with a fragmented ownership structure. The company operates under a payment institution licence issued by the National Bank of Kazakhstan. Its shares are held by three founders through individual ownership - no holding company exists. One founder holds 51%, the second holds 30%, and the third holds 19%. The company has developed proprietary software that is registered in the name of the 51% founder personally.

The pre-IPO restructuring for this company must address four issues simultaneously. First, the payment institution licence contains a change-of-control provision requiring National Bank approval for any transfer of a qualifying shareholding (defined as 10% or more). This means that the establishment of a holding company above the operating entity requires regulatory pre-clearance, which typically takes 60 to 90 days and requires submission of detailed information about the proposed holding company and its ultimate beneficial owners. Second, the software must be transferred from the founder to the operating company or the holding company, with the transfer registered with the NIIP. Third, the minority founder holding 19% must execute a shareholder agreement that includes drag-along rights, allowing the majority to compel the minority to sell in the event of an IPO or trade sale. Under Kazakhstani civil law, drag-along rights are not automatically enforceable, and the shareholder agreement must be structured carefully to achieve the desired economic effect. Fourth, the company must convert from an LLP to a JSC before the listing, which requires the National Bank';s consent as the licensing authority.

The total timeline for this restructuring, assuming no complications in the regulatory approval process, is approximately 9 to 12 months. Legal fees for a transaction of this complexity typically start from the low tens of thousands of USD, with additional costs for regulatory filings, notarisation and translation.

Scenario two: a Georgian e-commerce group with a Cyprus holding company targeting a London listing. The group operates through three Georgian LLCs, with a Cyprus holding company already in place. The Cyprus company holds 100% of each Georgian LLC. The group has been approached by a London-based private equity fund that wishes to invest at the pre-IPO stage and requires a structure compatible with a potential listing on the London Stock Exchange';s AIM market.

The key restructuring issues for this group are governance and documentation. AIM requires a nominated adviser (Nomad) who will conduct due diligence on the company';s legal structure, governance and financial controls. The Nomad';s due diligence will focus on whether the Cyprus holding company';s articles of association support the share class structure required by the PE investor, whether the Georgian operating subsidiaries have clean title to their assets, and whether the group';s related-party transactions have been conducted on arm';s length terms and properly documented.

A common mistake for Georgian operating businesses is the absence of formal intercompany agreements. Loans between the Cyprus holding company and the Georgian subsidiaries, management fee arrangements and IP licences are frequently undocumented or documented on terms that do not reflect market rates. This creates both a tax risk - Georgian transfer pricing rules under the Tax Code of Georgia (Налоговый кодекс Грузии), Article 126, require arm';s length pricing for related-party transactions - and a governance risk, because the Nomad will require evidence that minority shareholders in the operating subsidiaries (if any) have been treated fairly.

Scenario three: an Uzbek manufacturing business seeking a dual listing on AIX and a regional exchange. The company operates a manufacturing facility under a long-term land use agreement with the Uzbek state. Its revenue is predominantly in Uzbek soum, but it has USD-denominated debt. The founders wish to list on the AIX to access international capital while retaining a domestic Uzbek listing for local investor relations.

The structural challenge here is currency and asset risk. The land use agreement is not a property right - it is an administrative authorisation that can be revoked or modified by the state authority. International institutional investors will require either a conversion of the land use right to a long-term lease or a purchase of the underlying land, or alternatively a contractual structure that mitigates the revocation risk. Under Uzbek law, the Land Code (Земельный кодекс Республики Узбекистан) permits long-term lease agreements for up to 50 years for industrial purposes, and a conversion from an administrative land use right to a registered long-term lease agreement is achievable but requires engagement with the relevant regional administration and the State Committee on Land Resources.

The dual listing structure requires the operating company to comply with the disclosure and governance requirements of both the AFSA and the Uzbek Capital Market Development Agency (CMDA). Where the two sets of requirements conflict - for example, on the composition of the board or the frequency of financial reporting - the more stringent requirement prevails in practice.

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Pre-IPO restructuring in CIS jurisdictions carries a set of risks that are distinct from those encountered in Western transactions. Understanding these risks before the restructuring begins is the difference between a transaction that closes on schedule and one that stalls at the due diligence stage.

Tax crystallisation on restructuring. Share transfers and mergers within a group can trigger capital gains tax, withholding tax on deemed dividends, and VAT on the transfer of assets. In Kazakhstan, capital gains on the sale of shares in a Kazakhstani company are subject to corporate income tax at 20% under the Tax Code of the Republic of Kazakhstan (Налоговый кодекс Республики Казахстан), Article 228, unless an exemption applies. The most commonly used exemption is the three-year holding period rule, which exempts gains on shares held for more than three years if the company is not a subsoil user and less than 50% of its assets consist of real property. Many CIS operating companies do not satisfy these conditions, and the tax cost of the restructuring must be modelled before the structure is finalised.

Regulatory change-of-control triggers. As illustrated in scenario one, regulated businesses face mandatory regulatory approvals for changes in qualifying shareholdings. The risk of inaction is significant: completing a share transfer without obtaining the required regulatory approval can result in the licence being suspended or revoked, which is a catastrophic outcome at the pre-IPO stage. The approval process must be built into the restructuring timeline from the outset, not treated as an afterthought.

Minority shareholder rights. CIS corporate law systems generally provide minority shareholders with appraisal rights - the right to demand that the company purchase their shares at fair value if they vote against a fundamental transaction such as a merger or conversion. In Kazakhstan, the Law on Joint Stock Companies, Article 27, gives dissenting shareholders the right to demand repurchase of their shares at market value within 30 days of the relevant decision. If the company has minority shareholders who are not aligned with the IPO strategy, the cost of buying them out must be factored into the restructuring budget.

Beneficial ownership disclosure. International listing venues require full disclosure of the ultimate beneficial ownership chain. CIS companies that have used nominee arrangements, bearer shares or informal trust structures to obscure ownership will need to unwind these arrangements before the listing. In practice, this process is more complex than it appears, because the nominees may have acquired legal rights that are difficult to extinguish without their cooperation. Many underappreciate the time and cost involved in cleaning up a nominee structure that has been in place for many years.

Prospectus liability. The IPO prospectus is a legal document that creates liability for misstatements and omissions. Directors, founders and advisers who sign or approve the prospectus are personally liable for material misstatements under the securities laws of the listing jurisdiction. In the AIFC context, AFSA Regulation No. 1 on Prospectus Requirements imposes liability on the issuer and its directors for misleading statements. A restructuring that leaves unresolved legal issues - undisclosed litigation, unregistered IP transfers, undocumented related-party transactions - creates prospectus liability that can expose founders to personal claims after the listing.

A loss caused by an incorrect restructuring strategy is not always visible at the time of the restructuring. It may materialise as a reduced IPO valuation, a failed listing, or post-IPO litigation by investors who allege that the prospectus was misleading. The cost of non-specialist advice at the pre-IPO stage is therefore not the fee saved on legal work - it is the potential loss of the entire IPO value.

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The pre-IPO restructuring process involves a series of strategic choices where one approach must be weighed against an alternative. These choices are not purely legal - they involve business economics, investor expectations and the practical capacity of the management team to execute a complex transaction.

AIFC incorporation versus Cyprus holding company. The AIFC framework offers English-law governed corporate documents, a common law court and arbitration centre, and a listing venue (AIX) that is recognised by international index providers. Cyprus offers EU membership, a broader tax treaty network, and greater familiarity among European institutional investors. The choice between the two depends primarily on the target investor base and the intended listing venue. A company targeting European institutional investors and a London or Amsterdam listing should use a Cyprus or Dutch holding company. A company targeting Central Asian and Middle Eastern investors and an AIX listing should use an AIFC holding company. A company that is genuinely uncertain about its listing venue should consider a two-tier structure with an AIFC intermediate holding company below a Cyprus or Dutch top-holding company, but this adds cost and complexity.

Merger versus contractual consolidation. Where a group has multiple operating entities, the choice between a formal merger and a contractual consolidation (achieved through management agreements, IP licences and intercompany loans) affects both the tax cost and the governance structure. A formal merger eliminates the subsidiary entities and consolidates all assets and liabilities in a single entity, which simplifies the corporate structure but triggers creditor notification rights and potentially antimonopoly review. A contractual consolidation preserves the subsidiary structure but creates a web of intercompany agreements that must be maintained and disclosed. For most pre-IPO transactions, a formal merger is preferable where the operating entities are in the same jurisdiction, and contractual consolidation is used where cross-border tax considerations make a formal merger prohibitively expensive.

Pre-IPO convertible note versus direct equity investment. Pre-IPO investors can enter through a convertible note - a debt instrument that converts into equity at the IPO at a discount to the IPO price - or through a direct subscription for preference shares. The convertible note is simpler to document and defers the valuation question to the IPO, which is attractive when the company';s valuation is uncertain. The direct equity investment requires an agreed valuation at the time of investment, which can be contentious, but gives the investor immediate equity rights including information rights, board representation and anti-dilution protection. In the CIS context, the convertible note is often preferred because it avoids the need to complete the full corporate restructuring before the investment closes - the investor lends money to the existing entity and converts at the IPO when the restructuring is complete.

Domestic listing versus international listing. A domestic listing on KASE or the Tashkent Stock Exchange (TSE) is faster and cheaper than an international listing, but provides access only to a shallow domestic investor base. An international listing on AIX, AIM or a Gulf exchange provides access to a broader investor base but requires compliance with more demanding disclosure and governance standards. Many CIS companies pursue a domestic listing first as a stepping stone to an international listing, using the domestic listing process to build governance infrastructure and financial reporting discipline. This sequencing is commercially rational but adds to the total timeline.

To receive a checklist for strategic choices in CIS pre-IPO restructuring, send a request to info@vlolawfirm.com.

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What is the most significant legal risk in a CIS pre-IPO restructuring that founders typically overlook?

The most significant overlooked risk is the interaction between regulatory change-of-control provisions in operating licences and the corporate restructuring steps. Founders frequently assume that moving shares between entities within the same beneficial ownership group does not constitute a change of control for regulatory purposes. In most CIS jurisdictions, this assumption is incorrect - the relevant test is a change in the legal owner of a qualifying shareholding, not a change in the ultimate beneficial owner. Completing a share transfer without obtaining the required regulatory approval can result in licence suspension, which halts the IPO process entirely. The correct approach is to map all regulatory approvals required before any restructuring steps are taken and to obtain those approvals as the first substantive step in the process.

How long does a typical pre-IPO restructuring take in Kazakhstan, and what does it cost?

A full pre-IPO restructuring for a Kazakhstani operating business - covering legal form conversion, holding structure establishment, IP consolidation, governance build-out and regulatory pre-clearance - typically takes 12 to 18 months from the initial legal audit to a state of readiness for prospectus preparation. The timeline extends if regulatory approvals are required or if the ownership structure needs to be unwound from nominee arrangements. Legal fees for the restructuring work typically start from the low tens of thousands of USD for a straightforward single-entity restructuring and can reach the mid-to-high hundreds of thousands of USD for a complex multi-jurisdictional group. These figures do not include investment banking fees, auditor costs or regulatory filing fees, which add substantially to the total transaction cost.

Should a CIS company use an AIFC holding structure or a traditional offshore structure for a pre-IPO transaction?

The answer depends on the target listing venue and investor base. The AIFC structure is well-suited for companies targeting the AIX or regional exchanges in the Gulf, because the AIFC framework is recognised by those markets and the AFSA is a credible regulator in the eyes of regional institutional investors. The traditional offshore structure - Cyprus, BVI or Cayman Islands - remains preferable for companies targeting European or US institutional investors, because those investors are more familiar with those jurisdictions and their legal frameworks. A company that has not yet determined its listing venue should avoid committing to a holding structure prematurely, because changing the holding structure after pre-IPO investors have entered is costly and requires investor consent. The better approach is to use a flexible intermediate structure that can be adapted to either listing venue as the decision crystallises.

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Pre-IPO restructuring in CIS jurisdictions is a multi-layered legal exercise that requires careful sequencing, jurisdiction-specific expertise and early engagement with regulatory authorities. The companies that complete successful listings are those that begin the restructuring process early, address IP and governance issues before they become due diligence problems, and select their holding structure based on a clear view of their target investor base and listing venue. The cost of a well-executed restructuring is a fraction of the value at stake in a successful IPO - and the cost of a poorly executed one can be the listing itself.

Our law firm VLO Law Firms has experience supporting clients in Kazakhstan, Georgia, Armenia and other CIS jurisdictions on pre-IPO restructuring, M&A and corporate governance matters. We can assist with holding structure design, regulatory pre-clearance, shareholder agreement drafting, IP consolidation and prospectus preparation support. To receive a consultation, contact: info@vlolawfirm.com